I can easily imagine this being weaponized by short sellers and foreign actors.
Hate to break it to you, bank runs have been a thing for hundreds of years. This isn't new. You put your own money at risk by participating.
One of Elon's biggest achievements is normalizing demonizing "the shorts". In this case the Bank took took much risk and was insolvent; the shorts would be right.
But if your venture relies on excessively inflated stock values to harvest the capital you want/need, then you really don't want short sellers exposing that discrepancy.
So, yes, anyone in that position demonizing short sellers should be pretty much ignored (or taken as a sign that this is a good short oppo).
That said, short sellers trying to manipulate the market or stocks can actually do real damage that would not otherwise occur. I see strong indications that Peter Theil is in this category. It looks very much like he made first significant public "Pull Your Money Out!" calls; if he was short SIVB at the time (or had other positions or situations that would gain from SVB's failure), that's very suspicious.
Like for example he and all his startups keeping their money while some of their competitors don't? No need for any other bets for a bank run to benefit him
The U.S. has two major foreign powers and a noisy subset of its own elite who would like to see economic chaos right now, and it's never been easier to do that.
To give you an example of what I'm worried about, our accountant cautioned all of their clients yesterday about keeping funds with another bank that has had rumors circulating about it, saying that regardless the truth of the rumors, the fact that they are circulating could cause a run. This is the right thing for them to do; their fiduciary duty is to us and not to the stability of the market, but in aggregate, it's easy to imagine how everyone's accountant sending the same message at the same time could be exploited by someone who wants to destroy a small bank.
[1] https://paulbutler.org/2022/the-problem-with-bitcoin-miners/
Western investors in these markets can get very confused. Take short seller Andrew Left in Hong Kong who warned of Evergrande being dangerously illiquid in…2016. He was fined and banned from trading by the HK SAR whose judges claimed he didn’t understand the Chinese market well enough.
Maria Butina really played him and messed him up lol
involved with...
"Maria Butina worked as an assistant for Aleksandr Torshin, a former member of the Federation Council, a member of Vladimir Putin's United Russia party, and a deputy governor of the Central Bank of Russia. In this role, she worked to infiltrate conservative groups in the US, including the National Rifle Association, as part of an effort to promote Russian interests in the 2016 United States presidential election. The Senate Intelligence Committee later concluded that she attempted to persuade the Trump campaign to establish a secret communications back channel with Russia."
Two sides of the same coin these days...
I’m surprised this is news so recently after a financial crisis. When the CEO of the bank starts pleading for deposits to stay, you wire out.
there is one possible way to solve the coordination problem: just stop allowing withdrawals. the chinese figured this out. but you have to limit withdrawals on ALL banks because you bet your ass if one bank gets frozen, everyone will think another one is next and run that one too.
the only time we've rushed a serious contagion before was by instituting a bank holiday and basically putting in 100% deposit insurance. and that was when we had someone in charge whom most people trusted (FDR). biden, yellen, powell aren't so loved.
The logical conclusion of this thinking is a system where any rumor about any bank can cause a bank run, because people who take the time to figure out if the rumors are true lose out.
as for timing... i guess that's the benefit of being terminally online, you get a chance to get out :D
Right, that’s my point. It doesn’t make sense to try to figure out if the rumors are true, by the time you do it may be too late. This makes sense for you as the individual, but is dangerous for the overall stability of the system.
we can opine about how to resolve confidence and coordination issues but you can not go victim-blame people who just don't wanna get fucked over.
one of the core values banks provide is confidence and peace of mind. if my bank can no longer provide that, i am full sending my cash somewhere else.
I do, though, worry about the message it sends to say that everyone who didn’t flee is SOL. Fortunately, the fed seems to have played the same scenario out and did the right thing.
There is nothing to weaponize. If we taught the basics of finance everybody would know that the money you have in the bank is not yours but they are a IOU from the bank.
And if you wire them out to another account that you hold with another bank that is going to still be an IOU aelbit from a different bank.
The only true and true money guaranteed by the Federal Reserve is the Federal Reserve Note. All the rest is an IOU.
We accept to deal in IOUs because physical transportation, storage and protection of physical notes would be a nightmare, but still the nightmare can AND WILL show up for somebody randomly in the sample of participants in the form of insolvency of the banking institution issuing their IOUs.
It's all very clear and also the reason why some people refuse to deal with banks and opt for cash transactions and metals. Not to mention the hard assets such as water, gasoline, weapons, animals, vehicles, real estate etc.
These people seem loons 364 days out of 365, but there is a reason why evoloution put that seed thought inside their brains.
A very interesting risk in hind-sight, but unlikely to be a wide-spread issue.
There’s already rumors going around about other banks, and even though I think SVB is a structural outlier, I would be moving money around if I were with them above the FDIC limit, even if I knew for a fact they were solvent.